There is light at the end of the tunnel for British manufacturing – or that, at least, is the remarkably upbeat message from Boston Consulting Group, one of the world’s top consultancies.

The report argues that the UK is now one of the cheapest manufacturing locations in the western hemisphere and that Britain has improved its position relative to the eurozone, eastern Europe and even Asia over the past decade.

It is an assessment that will be greeted with relief in the UK’s manufacturing heartlands and in Downing Street. Despite the remarkable renaissance of British car manufacturing, led by the stellar efforts of Tata, BMW and Nissan, Britain’s manufacturing output remains well below its pre-recession level.

The latest official figures suggest that British factories are still producing 8pc less than they were making in the fourth quarter of 2000, their peak; by contrast, output in the services sector, as well as in the overall economy, is now the highest it has ever been. Paradoxically, a crisis that began in the financial sector ended up having a greater impact on the manufacturing industry, knocking out thousands of weaker players and accelerating the UK’s deindustrialisation.

So why is Boston Consulting Group so optimistic, especially given that UK manufacturing stagnated between 2000 and 2008, even before the collapse of Lehman Brothers? The key is that the UK’s wage costs – defined as how much firms need to pay per unit of work – have gone up by 16pc over the past decade. In France, wage costs are up 52pc and in Italy they are up by 62pc, it calculates. Britain’s corporation tax cuts, one of Chancellor George Osborne’s best policies, have also helped contain overall costs, and our labour market remains far more flexible than that of many other rival locations.

The analysis of the top 25 export economies’ changing competitiveness makes fascinating reading. Remarkably, China was one of the great losers between 2004 and 2014 – and America one of the big winners, with the UK holding its own and thus doing relatively well. Our costs are roughly 9pc higher than America’s, which isn’t bad – and we are pulling away from the rest of the western world, where competitiveness has declined dramatically. Germany is now 21pc more expensive than the US and France 24pc more costly. Italy and Belgium are 23pc more expensive, Canada 15pc, Sweden 16pc and Japan 11pc. Overall, Britain’s competitiveness has improved by around 10 percentage points compared with western Europe over the past decade, an important shift that has gone largely unnoticed.

Perhaps most interesting of all, there has been a cost explosion in many traditionally cheap emerging markets, helping the US and UK positions. A decade ago, the productivity-adjusted cost of making manufactured goods was around $4.35 (£2.60) an hour in China and $6.76 per hour in Russia. These figures took the fact that both wages as well as productivity were lower into account.

Today, the picture has dramatically changed. Productivity-adjusted wage costs are up by around 200pc in both emerging markets, following huge pay rises, taking them to $12.47 an hour in China and $21.90 in Russia. America’s are up by just 27pc to $22.32.

Sure, it’s still cheaper to employ people to make things in China – but the gap has narrowed dramatically. Once transport and energy costs are included, shipping times, political uncertainty and the hassle of doing business in China, the gap narrows further – and in some cases the US has now become cheaper. In the case of China, the overall cost advantage relative to the US has fallen from 14pc to 4pc. These sorts of calculations help to explain why hundreds of firms are starting to reshore business back to North America.

Energy policy has been key: in the US, shale has provided a plentiful supply of cheap electricity; in China, the price of electricity has rocketed by 66pc and that of natural gas by 138pc. The increases have been even greater in Russia.

Many other economies have fallen back compared with the US. Brazil’s costs used to be 3pc lower; they are now 23pc higher. Poland’s used to be 6pc cheaper; they are now similar. Russia used to be 13pc cheaper; its costs are now estimated to be the same as America’s. Among the winners have been India, Mexico, Thailand and Indonesia: all countries that are now cheaper than China and of course also the US.

Britain has done better than expected but now is not the time for celebrations. Imagine how much better the UK’s performance could have been had our politicians taken the right decisions over the past 15 years. Energy is a case in point: natural gas prices have collapsed by 25pc to 35pc in the US over the past decade, thanks to the wholesale adoption of fracking and shale. This was a remarkable, bottom-up response to the energy crisis, and one which has transformed America, entirely for the better. By contrast, energy prices have shot up 100pc to 200pc in the likes of Poland, South Korea and Russia, dealing these economies a devastating blow.

While prices in Britain didn’t rise by as much, of course, our obsession with compelling the use of the most expensive possible form of renewable energy has severely damaged our manufacturing industry. Imagine how competitive we would now be had we not channelled all of our energies and cash into wind, which has turned out to be extraordinarily costly.

Our obsession with seeking to decarbonise faster than anybody else and inability to implement the right economic framework for shale – one which allows winners to buy off losers, and truly incentivises locals – has been a tragic missed opportunity. We are lucky that, despite this double blunder, as well as an education system that remains deficient, UK manufacturing has fared relatively well in terms of cost, if not yet in terms of output.

The Boston report is right to highlight Britain’s relatively flexible market as a key advantage. Here too, however, many policies have eroded this, re-regulating the workplace. Fortunately, profound cultural shifts in favour of flexibility appear to have more than cancelled out the impact of extra red tape.

The other lesson is that supply-side economics works and that we need more of it. The sharp reduction in corporation tax has given Britain’s manufacturing industry a fillip; it is just a shame that taxes on income remain so high.